Firefighters put out a car fire at a repair ship. Slow gross-receipts tax revenue has constrained local government jobs. (Jim Thompson/Albuquerque Journal.)

grew a little stronger in New Mexico through 2014 as incomes grew and more people landed jobs, although it’s too soon to pop the champagne and raise a toast, according to the Journal’s twice-a-year Economy Watch.

“We’ve strung together nine months of income growth, adding close to 12,000 jobs over the year,” said Jeffrey Mitchell, director of the Bureau of Business and Economic Research at the University of New Mexico.

“By historical standards and compared to other states, those aren’t eye-popping,” he said. “It’s better than what we’ve seen the past five years.”

The 2007-09 national recession resulted in a prolonged economic hangover in New Mexico. While potential building blocks of a recovery have been glimpsed here and there, the state has lagged the national recovery.

“The U.S. economy hasn’t been smooth, recovering in spurts. Some of it might be weather related, but it’s an unusual trend in recoveries,” Mitchell said. “New Mexico has moved reliably sideways since 2009. In the last nine months, the state has gained some traction.”

Two impediments to a steadier recovery both here and nationwide have been the comparatively low rate of household formation – essentially young adults moving out on their own – and a dropping labor force participation rate.

“The rate of new household formation is at historical lows nationally, and we think it’s consistent in New Mexico,” he said. “This explains what is happening in the housing market and the lack of vigor in the recovery as a whole.”

Labor force participation dropped from 66.4 percent at the beginning of 2007 to 62.8 percent in April, according to the Bureau of Labor Statistics. While the rate is a national average, it likely reflects participation in New Mexico, Mitchell said.

“Small numbers mean a lot here. Three percent is a big deal,” he said. “A problem we see is the number of people who have been out of the workforce so long it makes it very difficult for them to get back in. That’s a very troubling piece of data.”

The drop in labor force participation from 66.4 percent in 2007 to 62.8 percent now would translate to roughly 45,000 would-be wage earners in New Mexico dropping out of the labor force.

A big drag on net job growth has been job cutbacks in the public sector, particularly in the federal and local governments.

“We’re seeing pretty regular cuts of 3-4 percent a year in the level of federal employment,” Mitchell said. “New Mexico has nearly 4 percent of its total employment in the federal government, which places us fifth in the country. These job cuts have a disproportionate impact on the state.”

The local government job sector, which includes public schools and tribal enterprises, has been constrained by slow growth in gross receipts tax revenue. At about 102,000 employees or 13 percent of total employment, the sector’s job losses also have a disproportionate impact, he said.

Much of the private job growth, both here and around the country, has been lower-wage jobs like those found in hotels, restaurants and back offices. The upshot is the new jobs are not generating a lot of wage growth.

A quirk shows up in the 6 percent increase in total personal income in New Mexico from the fourth quarter of 2013 to the fourth quarter of 2014, Mitchell noted.

A third of the year-over-year increase, or 2 percent, comes from a $1.6 billion jump in the flow of federal Medicaid funding to the state’s Centennial Care health plan, he said. Averaged across the full year, federal Medicaid funding was up by almost half in 2014 compared to 2013.

“That’s higher than we anticipated,” he said.

Such a big injection of money into health care was just beginning to show up in the sector’s job numbers with a year-over-year increase of 3.7 percent in the second quarter of 2014.

“It’s much less than one might expect from the dollar flow,” Mitchell said. “It might have to do with the focus on preventive care. There might be some question of our capacity to absorb those dollars, particularly in rural parts of the state.”

The role of oil in the state economy is playing out both at the front end with production and the back end as a consumer commodity.

“From the data we have thus far, we know new drilling activity in the oil sector is way down, from somewhere in the area of 100-plus rigs to most recently 44,” Mitchell said.

While motorists enjoyed the savings at the gas pump, the low prices didn’t produce the expected shift in consumer spending. (Dean Hanson/Albuquerque Journal)

While oil exploration has dropped, production has remained strong, he said. The mining sector, which includes oil industry employment, has been holding onto its jobs but is expected to fade in coming months.

“But not to the low level of 2010 before this (oil boom) began,” he said.

Petroleum prices topped $100 a barrel in 2014, then dropped to less than $50 a barrel early this year. A corresponding drop in retail prices at the gas pump did not appear to produce the expected shift in consumer spending.

“The data suggested nationally – and it’s not inconsistent with what we’ve seen in New Mexico – people are saving some of that money from the decline in gas prices rather than transferring it to other forms of consumption,” Mitchell said.

Given that consumer spending makes up from 62 percent to about 70 percent of the gross domestic product or GDP, consumers who save money do not promote economic growth.

New Mexico’s economic recovery has lagged so far behind the national recovery, now in its sixth year, that there is some risk that a cyclic downshift in economic growth nationwide could nip the state recovery in the bud, Mitchell said.

Such a view is pessimistic, he acknowledged, and may not hold up if in fact the national economy does stall. After the dot-com bubble collapsed, New Mexico’s economic growth remained positive while most of the country slid into what, in hindsight, was the rather benign recession of 2001.

“New Mexico behaving differently is not unprecedented,” he said. “But it’s certainly easier to swim with the tide rather than against it.”